Stocks Increased Dividends

Stocks Increased Dividends

Why It Is Smart to Own Dividend Stocks

Nowadays, it has become common for investors to simply consider the returns generated from their stock investments in terms of an increase in the share price. In the process, they have forgotten another important criterion of selecting the shares: dividend yield. In fact, dividend has become the most ignored aspect of stock selection. But it is important for you to consider this factor also when choosing stocks for investment.

• What is dividend? When you invest in the shares of a company, you become a part-owner of the company. The company uses your money to conduct its activities. Now you have to be compensated for your investment in some way. This is done by giving you a dividend, which is nothing but a share of the profits earned by the company. This is something akin to interest earned on a FD. But it is not mandatory for the company to give you dividend, unlike as the company may be planning to use the amount for its business purposes. This is quite common amongst most new generation businesses like telecom and IT companies.
• What is dividend yield: A dividend yield can be said to be the ratio of dividend offered on each share to the share’s market price.

Dividend Yield = Dividend on each Share / Share’s Market Price * 100

E.g. if the company offers a dividend of Rs. 20 per share, whose market price is Rs. 600, will give you a dividend yield of Rs. 3.33%.
• What are the benefits of investing in dividend stocks? There are some benefits of investing in stocks offering good dividend yields. One is it is quite easier for you to recover your original investment, in the form of dividends. This is important for those investors who tend to lose their sleep over market volatility. Also if you are looking for income from stocks, high dividend stocks can be your best bet. But the main benefit is that your capital will continue to increase over a long-term. (Find out about NAB online trading. Also make sure to visit Instaforex.)

Moreover the companies that tend to offer good dividends are usually well-established ones. So you can rest assured that your money is in safe hands. Companies like HLL, Tata Tea, Tata Steel, and SRF have given some eye-popping dividends over the years.

However there is a dark side to concentrating on the dividend yield stocks. Those stocks that offer high dividends tend to compromise on their growth. This becomes important in today’s competitive world; growth has become very important in order for the business to survive. So effectively, you are trading good returns in order to enjoy safety. Hence your capital appreciation after investing in these stocks will be lower than that obtained after investing in growth stocks. Also it may not be feasible for the company to keep on paying high dividends year after year. If the market situation is bad, and if the company has not earned any healthy profit, you will not get any dividend. So it is advisable for you to have a healthy mix of growth and dividend yield stocks.

Wal-Mart Announces Increased Yearly Dividend (WMT)